Upward business cycle to last longer than anticipated

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According to the Economic Bulletin issued by the Ministry of Finance's Economics Department on June 20th, the upward cycle continues to be stronger and will last longer than was anticipated earlier.
      Thanks to the good cyclical prospects, the Ministry has raised its GDP growth forecasts for 2007 to 4.3 per cent, instead of the 3.1 per cent predicted only three months ago.
      At the same juncture, other economists including research institutes and banks had similar expectations, almost all predicting a growth of 3 to 3.5 per cent.
      Principally the revision of the previous forecast is attributed to the national income statistics.
     
According to the assessment of Statistics Finland, the end of last year was better than was still recently assumed. In addition, the growth has continued at a rate of five per cent in the first quarter of the current year.
      The increase in the GDP in the first quarter was based on surprisingly strong domestic demand, while the good international trend also continued, particularly in Europe.
      According to Hannu Jokinen from the Ministry of Finance's Economics Department, this is the first time a revision like this has been made. He points the finger good-naturedly in the direction of Statistics Finland, saying that all other statistics have long been developed, while statistics relating to cyclical changes may have been left somewhat behind.
     
Jokinen notes further that it is difficult to find another period in Finnish history that could be compared with the current strong upward cycle. He says that the upward trend at the beginning of the 1990s after the recession and that before the recession from 1988 to 1989 are not comparable, as the economic situation then was entirely different.
      "However, the period from 1979 to 1980 was somewhat similar to the present one. Following a lengthy period of "recovery politics", Finland was competitive, while the growth rate of exports was around 10 per cent. Domestic demand, construction, and employment all enjoyed brisk growth", Jokinen recalls.
     
Nevertheless, there is a down side. Inflation, too, has been running faster than was previously estimated in the past few months. The current inflation forecast for both 2007 and 2008 is 2.4 per cent.
      The savings balance of Finnish households was negative already last year, and a 3.5 per cent deficit in the disposable income of households is predicted for next year.
     
The current account surplus will remain large, and thanks to Finland’s good export success during the spring, the surplus exceeded that of last year, and the favourable trend looks set to continue. Next year the growth in foreign trade will slow down compared with 2007, but will still be export-intensive.
      Furthermore, the Ministry also evaluated the impact of high salary increases, saying that the central task of economic policy is now to safeguard economic stability.


Links:
  Ministry of Finance Economics Department: Economic Bulletin 20.6.2007/2

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